CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Forex Risk Management

Forex Risk Management

Whenever you invest there will be some risk. We help you manage it when you trade forex with Spread Co.

When you trade forex you’re trading on margin. So you’re using leverage to gain exposure to a potentially higher profit. This approach also means that your potential loss could be many times greater than your initial outlay. We call this an investment risk.

To help you manage this risk, there are useful risk management features included in your Spread Co account.

Some of them are free to use so it’s worthwhile using them with every position you take. Here’s how they work.

Managing forex trading risk

Whether you trade forex using spread betting or by trading CFDs you can add in risk management features that allow you to limit your potential loss, and to lock-in your profit when it reaches a particular level.

There’s no charge for using some of these risk management features. Using them every time you open a new position — and also on positions that are already open — lets you select the level of risk you’re comfortable with.

Using stop loss orders with forex trading

A stop loss is an order. If the market price meets this order a trade is automatically executed. So, if exchange rates move in the opposite of the direction you predicted, a stop loss will give you some protection and limit your losses.

If sterling was to weaken against the US dollar you would stand to make a loss when you come to close your trade.

You can place a stop loss at any time – when you open it or at any time before you close it. This will automatically close your position at a price you have selected. For example, you might decide to set a stop loss at 1.45455 which means your potential loss is just 50 pips. So stop losses let you set a ceiling on your potential losses.

Locking in your forex gains with limit orders

Forex trading works best when you’re able to react quickly to market developments. But sometimes you may not be able to keep a close eye on your open positions. That’s where a limit order can be very useful. Put simply, it lets you automatically close your forex positions if the market reaches a level set by you.

Using the previous example, let’s say you felt confident that GBP/USD will climb from 1.45505 to 1.45605.

If the value does rise the way you anticipated, your position would be automatically closed when it reaches this level.

Of course, you would probably want to also set a stop loss to reduce potential losses.

Using stop loss and limit orders together

Using these features together with every trade can help you manage the risks associated with forex trading to avoid any market ‘gaps’. You can adjust your stop loss and limit order values to take account of changing market conditions without having to close your trades.

Platforms

Markets

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

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